'Creative accounting' propped up Tabung Haji's high hibah payouts

Tuesday 29 Sep 2026

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KUALA LUMPUR (July 29): Lembaga Tabung Haji (TH) used "creative accounting practices" to justify paying high hibah (profit distributions) between 2014 and 2017 that exceeded its financial capacity and depleted its reserves, according to the Royal Commission of Inquiry (RCI) report released on Wednesday.

The report noted that TH relied on the realisable asset value (RAV), rather than the asset values reported in its audited financial statements, to determine compliance with Section 22 of the Tabung Haji Act 1995 during the four-year period. The use of RAV inflated TH's asset values above those reported in its audited accounts, while no impairment adjustments were made for investments that had declined below their acquisition cost.

"TH's management argued that Section 22 of Act 535 did not provide a clear definition of 'assets'. Therefore, management believed it had the discretion to determine how asset values should be calculated," the report said.

The commission found that the generous hibah payouts attracted depositors seeking higher returns but caused the pilgrims fund board to drift from its original mandate, exposing it to the risk of a bank run should distributions fall.

That risk materialised in 2019 after TH declared a 1.25% hibah, with deposits shrinking to RM69 billion by end-2019 from about RM73 billion before the announcement. The commission said TH was fortunate the withdrawals were smaller than initially feared.

The pressure to sustain high hibah payouts also pushed TH to take excessive investment risks, with its portfolio becoming increasingly concentrated in equities that were more exposed to market volatility.

The RCI said the findings stemmed from concerns raised by the auditor general (AG), who highlighted inconsistencies in TH's financial asset impairment policy in 2017, when the policy was revised twice.

The report said the AG found that TH had failed to recognise RM227.81 million in impairment losses on investments in three subsidiaries and three associate companies, including RM164.58 million related to TH Heavy Engineering Bhd.

Following the AG's findings, TH appointed PricewaterhouseCoopers (PwC) to review its financial position between 2014 and 2017. PwC found that the fund had been in an asset-liability deficit position since 2014.

According to the RCI, full adoption of Malaysian Financial Reporting Standards (MFRS) in 2017 would have resulted in TH posting a net loss of RM1.4 billion instead of the RM3.4 billion profit reported in its financial statements, highlighting that the pilgrims fund board was already in a critical financial position.

'AG should not have issued clean audit opinion in TH’s financial statements'

The RCI also identified the National Audit Department's (NAD) lack of firmness as a key factor behind TH's financial crisis, saying the fund should not have received a clean audit opinion for its 2017 financial statements.

Although the 2017 audit report contained an "emphasis of matter", TH's financial statements from 2014 to 2017 were still issued with unqualified audit opinions.

Citing a Dec 19, 2018 letter from the AG to then prime minister Tun Dr Mahathir Mohamad, the report said a qualified audit opinion had initially been proposed unless TH recognised RM227.81 million in impairment losses on investments in subsidiaries and associate companies and addressed changes to its financial asset impairment policy.

However, the AG decided to issue an unqualified opinion with an "emphasis of matter", citing concerns that a qualified opinion could undermine stakeholders' confidence, particularly among depositors.

The commission said this showed the AG had taken into account considerations beyond the scope of the audit, and that the issues highlighted under the "emphasis of matter" should instead have been treated as instances of non-compliance.

"Without a clean audit opinion, TH should not have declared an annual hibah of 4.5% and an additional haj hibah of 1.75%, which cost RM2.75 billion for the 2017 financial year," the report said.

The commission also criticised the NAD for failing to question TH's generous hibah payouts between 2014 and 2017, saying the distributions exceeded the fund's financial capacity.

Growing haj subsidy burden

Besides attributing TH's financial crisis to its expanded role as a "pillar of the ummah economy", which saw the pilgrims fund board stray from its original mandate and venture aggressively into property and plantation investments despite lacking the necessary expertise, the commission also identified the Haj Financial Assistance (Hafis) scheme as a growing financial burden.

Between 2014 and 2019, TH charged Muassasah pilgrims RM9,980 each, with the balance subsidised through Hafis. The subsidy bill rose from RM106 million in 2014 to RM300 million in 2019.

Although TH introduced a two-tier haj payment structure in 2022 — RM10,980 for B40 (bottom 40% income group) pilgrims and RM12,980 for non-B40 pilgrims — the commission said the subsidy burden remained substantial.

The commission estimated that Hafis could cost nearly RM400 million annually from 2022, with annual expenditure projected to reach RM742.47 million by 2030 if haj costs continue to rise while pilgrim charges remain unchanged.

As Hafis is funded from TH's investment returns, the commission said rising subsidy costs would reduce hibah payouts to depositors and increase the risk of large depositors moving their funds elsewhere. It estimated that TH requires a minimum deposit base of RM60 billion to sustain the scheme at its current level, with higher subsidy costs likely to increase its reliance on large depositors.

Edited ByS Kanagaraju

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